SAP Rising: Bull, Bear Cheer Q3 Progress in Cloud, Hana

By Tiernan Ray

Shares of enterprise vendor SAP AG (SAP) are up $2.50, or 3.4%, at $76.25, after the company this morning reportedQ3 revenue in line with analysts’ estimates and profit that topped consensus.

Revenue in the three months ending in September rose 2%, year over year, to €4.05 billion, yielding EPS of €0.78, excluding some costs.

Analysts had been modeling €4.08 billion and €0.77 per share.

SAP noted that its revenue from cloud computing software and subscriptions, combined, rose 7%, and co-CEOs Jim Hagemann Snabe and Bill McDermott remarked that “We now are the second largest enterprise cloud company with an annual cloud revenue run rate exceeding €1 billion.”

Sales of SAP’s Hana in-memory database rose 79%, year over year, to €149, and the company said it is on track to make $1 billion in Hana sales since the product was introduced.

There were no ratings changes today, that I can see, but estimates were being trimmed here and there.

Mark Moerdler of Bernstein Research, who has an Outperform rating on the shares, and an $89 price target, notes that software revenue was 1% below consensus, while cloud revenue was 2% higher.

Writes Moerdler, “Given mixed results from other enterprise software companies including the recent guide-down by Citrix1 we believe the regional improvements by SAP combined with strength in HANA and Cloud will be viewed positively by investors.”

He thinks there’s more good news to come from Hana:

Management specifically called out HANA wins including over 2,100 HANA customers and 450 SAP Business Suite customers. We believe most of these 450 customers are still early in the process and will only generate significant HANA revenue over time as they put more of the Suite operational on HANA.

Nomura Equity Research‘s Rick Sherlund, who has a Buy on the shares, and a $68 price target, writes that although the 2% growth in software license revenue was below consensus, nevertheless, it was “much better than investor apprehensions we were hearing about.”

While Hana shone, the shift to cloud computing clearly is having an impact on SAP’s traditional license software business, he writes:

The HANA in-memory, columnar database had revenues of €149M in the quarter, well above our estimate of €102M and up 90% yoy in CC. SAP continues to expect HANA software revenue of €650–700M in 2013, up about 75%. The core Business Suite running on HANA now has a reported 450 customers. We estimate that SAP’s core license revenues may have been down about 5% CC y/y, depending on the mix of products, as SAP faces headwinds as the market moves from traditional on-premise software to the cloud. SSRS growth is guided to a least 10% CC in 2013, which we think is about 8% organic CC.

Jefferies & Co.’s Ross MacMillan, who has a Hold on the shares, and a $78 price target, notes that “a number of the underlying metrics were strong”:

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.